logo

Principles of Management Accounting PDF

   

Added on  2020-09-09

23 Pages7767 Words2468 ViewsType: 2468
FinanceProfessional Development
 | 
 | 
 | 
Table of ContentsDEFINITION:.......................................................................................................................................................................4PRINCIPLES OF MANAGEMENT ACCOUNTING..................................................................................................................41.DESIGNING AND COMPILING :...................................................................................................................................42.MANAGEMENT BY EXCEPTION :................................................................................................................................43.INTEGRETION :...........................................................................................................................................................44.USE OF RETURN ON INVESTMENT :...........................................................................................................................45.CONTROLLABLE AND UNCONTROLLABLE COSTS :.....................................................................................................4DIFFERENCES BETWEEN FINANCIAL AND MANAGEMENT ACCOUNTING..........................................................................4MANAGEMENT ACCOUNTING :.........................................................................................................................................4FINANACIAL ACCOUNTING :..............................................................................................................................................4FOLLOWING ESSENTIALS OF MANAGEMENT ACCOUNTING SYSTEM................................................................................5Types of Management Accounting Systems (MAS)...........................................................................................................5COST- ACCOUNTING SYSTEM............................................................................................................................................5JOB- COSTING SYSTEM......................................................................................................................................................5INVENTORY MANAGEMENT SYSTEM....................................................................................................................................5PRIZE- OPTIMIZING SYSTEM..............................................................................................................................................6INTEGRATION OF MANAGEMNT ACCOUNTING WITHIN KHAADI AND ITS USEFLNESS FOR THE MANAGEMNET.............61.PLANNING.....................................................................................................................................................................62.CONTROLLING...............................................................................................................................................................63.DECISION-MAKING........................................................................................................................................................64.GOAL SETTING...............................................................................................................................................................65.PROBLEM-SOLVING.......................................................................................................................................................6DIFFERENT METHODS USED FOR MANAGEMENT ACCOUNTING REPORTING..................................................................6LOII........................................................................................................................................................................................7COST:.....................................................................................................................................................................................7FIXED COSTS:.........................................................................................................................................................................7CVP:.......................................................................................................................................................................................7COST VARIANCE:...................................................................................................................................................................7INVENTORY COSTS:...............................................................................................................................................................7MARGINAL COSTING:............................................................................................................................................................7ABSORPTION COSTING:.........................................................................................................................................................8FIFO:......................................................................................................................................................................................9LIFO:....................................................................................................................................................................................10WEIGHTED AVERAGE COST (WAC) :....................................................................................................................................10VARIANCE ANALYSIS :..........................................................................................................................................................10SALES PRICE VARIANCE:......................................................................................................................................................10
Principles of Management Accounting PDF_1

SALES VOLUME VARIANCE:.................................................................................................................................................10MATERIAL RATE VARIANCE:................................................................................................................................................11MATERIAL QUANTITY VARIANCE:........................................................................................................................................11LABOUR EFFICIENCY VARIANCE:..........................................................................................................................................11LABOUR RATE VARIANCE:...................................................................................................................................................11Direct Labor Rate Variance:.........................................................................................................................................12VPOH RATE VARIANCE:.......................................................................................................................................................12VPOH EFFICIENCY VARIANCE:..............................................................................................................................................12FIXED P.O.H VARIANCE:.......................................................................................................................................................12FORMULA:......................................................................................................................................................................12BUDGET...........................................................................................................................................................................15COST REPORT..................................................................................................................................................................16PERFORMANCE REPORT..................................................................................................................................................16DISADVANTAGES AND ADVANTAGES OF DIFFERENT KINDS OF PLANNING TOOLS USED FOR BUDGETARY CONTROL...16MERITS OF BUDGETARY CONTROL..................................................................................................................................16DISADVANTAGES OF BUDGETARY CONTROL...................................................................................................................17THE USE OF DIFFERENT PLANNING TOOLS AND THEIR APPLICATION FOR PREPARING AND FORECASTING BUDGETS...17Use of Control and Planning Budget:..................................................................................................................................17Pricing:................................................................................................................................................................................17Costing System:...................................................................................................................................................................17Strategic planning:..............................................................................................................................................................17COMPARE HOW ORGANIZATIONS ARE ADAPTING MANAGERIAL ACCOUNTING SYSTEMS TO RESPONDING TO FINANCIAL PROBLEMS.....................................................................................................................................................17TOOLS AND TECHNIQUES OF MANAGEMENT ACCOUNTANT..........................................................................................17FINANCIAL PLANNING :.......................................................................................................................................................17FINANCIAL STATEMENT ANALYSIS:.....................................................................................................................................18COST ACCOUNTING:............................................................................................................................................................18CASH FLOW ANALYSIS:........................................................................................................................................................18STANDARD COSTING:..........................................................................................................................................................18MARGINAL COSTING:..........................................................................................................................................................18BUDGETARY COSTING:........................................................................................................................................................18AN ORGANIZATION CAN REACT TO FINANCIAL PROBLEMS USING THE FOLLOWING MANAGERIAL ACCOUNTING METHODS........................................................................................................................................................................18CAPITAL BUDGET:................................................................................................................................................................19OPERATING BUDGET:..........................................................................................................................................................19BEHAVIOURAL IMPLICATIONS OF BUDGETS:......................................................................................................................191
Principles of Management Accounting PDF_2

COMPARE HOW ORGANISATIONS ARE ADAPTING MANAGE MENT ACCOUNTING SYSTEMS TO RESPOND TO FINANCIAL PROBLEMS?..................................................................................................................................................20USING BENCHMARKS, FINANCIAL AND NON-FINANCIAL KEY PERFORMANCE INDICATORS, & BUDGETARY TARGETS TO IDENTIFY FINANCIAL PROBLE MS AND FINANCIAL VARIANCES. EXPLAIN BYUSING BENCH MARKS AND BUDGETING TARGETS HELP IDENTIFY FINANCIAL PROBLEMS AND FINANCIAL VARIANCES:...................................................................20ANALYSIS OF HOW MANAGEMENT ACCOUNTING CAN LEAD ORGANIZATION'S KHAADI OF SUSTAINABLE SUCCESS INRESPONDING TO FINANCIAL PROBLEMS.......................................................................................................................20THROUGH DEVELOPING EFFECTIVE STRATEGIES AND PROCESSES WHICH INCLUDE ACCURATE AND PROMPT DOCUMENTATION, WHICH ALSO INCLUDES DISCLOSURE OF ALL FINANCIAL SITUATIONS THAT ARE PROPERLY GOVERNED AND HELD AMONG THOSE WHO OCCUPY THEM?.....................................................................................21Strategic planning is concerned with the development of decision making on the kinds of markets and businesses in which the Khaadi and Gul Ahmedoperates and includes competitive decisions on market competition strategies. Strategic planning also utilizes financial analysis information from different management systems such as pricing, budgeting and quality measurement systems and also internally and externally organizational sources......................21EVALUATE HOW ACCOUNTING PLANNING TOOLS ADDRESS FINANCIAL PROBLEMS APPROPRIATELY TO LEAD ORGANISATIONS TO SUSTAINABLE SUCCESS:.................................................................................................................21PLANNING AND CONTROLLING:..........................................................................................................................................21IMPLEMENTING PLANS:......................................................................................................................................................21COMPETITIVE EDGE:............................................................................................................................................................21Bibliography........................................................................................................................................................................222
Principles of Management Accounting PDF_3

DEFINITION:The Institute of Cost and Management Accountants, London, has defined Management Accounting as: “The application of professional knowledge and skill in the preparation of accounting information in such a way as to assist management in the formulation of policies and in the planning and control of the operation of the undertakings”.[ CITATION Tuo19 \l 1033 ]PRINCIPLES OF MANAGEMENT ACCOUNTINGThe following principles of management accounting are:1.DESIGNING AND COMPILING :In order to satisfy the requirements of the particular company and/or specific issue, accounting data, documents, reports, statements and other proof of previous, current or future outcomes should be intended and compiled. It implies that the accounting management system is intended to present the appropriate information in such a manner.2.MANAGEMENT BY EXCEPTION :When presenting data to management, the principle of exceptional leadership is followed. It implies that the management accounting system follows the budgetary control system and regular costing methods. This compares the real performance with the predefined performance to evaluate the variances.3.INTEGRETION :It indicates that all of the management's necessary information is built so they can be used successfully at the maximum,while providing the accounting service at the minimum cost.4.USE OF RETURN ON INVESTMENT :Return on investment is otherwise called Capital Employed Return. The return rate demonstrates the company concern's effectiveness. The capital used is calculated in terms of actual cash value for this purpose.5.CONTROLLABLE AND UNCONTROLLABLE COSTS :Costs are categorized into two kinds, i.e. controllable and uncontrollable, based on cost controllability. Taking measures to control uncontrollable expenses is meaningless. Therefore, the accounting leadership scheme can provide controllable cost control methods.[ CITATION Dom19 \l 1033 ]DIFFERENCES BETWEEN FINANCIAL AND MANAGEMENT ACCOUNTINGMANAGEMENT ACCOUNTING : It is used internally. It is not governed by any law. Its consumers are an organization's management. It helps to make internal decisions. It is not mandatory to prepare and present financial statements. It will not be audited. There is no specified rate in which statements are prepared and presented. Monetary and non-monetary data includes management reports.FINANACIAL ACCOUNTING :It is mainly used for external reporting, although it is also reviewed by management. It must be provided in accordance with norms. Shareholders, investors and regulators are its consumers. It helps outsiders to make investment decisions and regulators to monitor them. It is compulsory to prepare and present. It is necessary to audit financial statements. Financial information for the financial year must be prepared and submitted. Financial accounts only include financial data.[ CITATION Acc18 \l 1033 ]3
Principles of Management Accounting PDF_4

FOLLOWING ESSENTIALS OF MANAGEMENT ACCOUNTING SYSTEMTypes of Management Accounting Systems (MAS)1. Cost-accountingsystems 2. Job-costing system 3. Inventorymanagementsystems4. Price-optimizing systemsCOST- ACCOUNTING SYSTEM Corporations like Khaadi apply the framework of costing system for approximate cost determination of its products in order to carry out inventory valuation, analysis of profitability, and control costs. The costs are allocated in cost accounting system on the basis of either costs incurred due to activity or traditional costing system. It is essential to estimate the costs of products for effective functioning of Khaadi’s business. This system aims at determining the costs of productions through calculating the direct and variable costs incurred at every production step and also the fixed costs like equipment depreciation. Costing process can calculate and report expenses separately and then correlate input figures to actual results or revenue to aid the company's management in assessing financial performance. Businessmanagers depend on general and cost-specific accounting information as any of the company's activities can be clarified through its value. Cost accounting is known to be the key concept of management accounting as it incorporates the analytical tools such as budgetary control marginal costing, absorption costing, and inventory control that are used bymanagement to effectively discharge their reproducibility.[ CITATION XPL19 \l 1033 ]JOB- COSTING SYSTEM Job costing refers to the system of allocating production costs to the product's individual items or batches. It is applied if the manufactured products differ from each other. It involves collecting data on the costs of a single company or production work. You may need the details to submit price data under the agreement to a customer in which expenses are refunded. Therefore, the information is useful to assess the reliability of the Khaadi’s valuation process, which must be capable of quoting rates which require reasonable income. In addition, the information may be used to assign inventory costs to processed products. The job costing system needs three types of direct information workers, direct materials, and overhead to be accumulated.[ CITATION Acc181 \l 1033 ]INVENTORY MANAGEMENT SYSTEMInventory management relates to the technique used by the company to control and supervise the orderinguse and storage of elements used in the manufacturing of the products it sells. Inventory management system mixes the use of barcode scanners, desktop software, mobile phones and barcode printers to simplify inventory management such as consumer goods, stocks and supplies. It is also the practice of monitoring and supervising the quantities for sale of the manufactured goods. The goal of inventory management is to understand the current inventory levels accurately and to minimize over blocking and understanding situations. Managers should have insight to be willing to make appropriate inventory decisions by an accurate tracking of quantities around the stocking location. A Khaadi's stock is one of the main resources and savings funds which are related to selling products. Inventory management system functions are thefollowing: generating purchase orders, acquiring, relocating, changing and disposing of stock. It also makes marketing orders, pick-ups, packing and consumer delivery. This executes process checks and records, produces, handles, plans, and exchanges actual stock statements and barcode labels for printing. The advantages of an Khaadi's inventory management program include increasing the Khaadi's bottom line, enhancing the quality of the inventory, and improving the company's workflow.[ CITATION Pon19 \l 1033 ]PRIZE- OPTIMIZING SYSTEM Price management relates to applying mathematical analysis to the Khaadi to decide how customers can respond across different channels to different prices of their goods and services. It is also used to evaluate the costs that a Khaadi 4
Principles of Management Accounting PDF_5

decides will best meet its goals, such as optimizing operating profit. Exploring an alternative through the highest achievable or cost-effective performance under the constraints provided by increasing desired aspects and reducing unwanted aspects.INTEGRATION OF MANAGEMNT ACCOUNTING WITHIN KHAADI AND ITS USEFLNESS FOR THE MANAGEMNETTHE BENEFITS OF MANAGEMENT ACCOUNTING SYSTEMS AND THEIR APPLICATIONS Management accounting is primarily used to generate data within an organization for executives. While financial accounting is of greatest benefit to stakeholders, financial accounting enables to achieve inner organizational goals.1.Planning 2.Controlling 3.Decision-Making 4.Problem-Solving 5.Goal setting1.PLANNING Future planning is a main focus of financial accounting. Management auditors create more comprehensive reports than economic accountants. They can include particular product data, market reach and regional data 2.CONTROLLING The managerial accounting data provides managers a higher feeling of control over the achievement of an organization. During the control stage, executives examine managerial accounting quantitative and qualitative reviews and make further choices.3.DECISION-MAKING Accounting management also perceives how certain choices can influence the conduct of a manager. A manager makes long-term choices with a permanent effect, thus using financial accounting to create plans and communicate data with the objective of enhancing management choices.4.GOAL SETTING Accounting management also perceives how certain choices can influence the conduct of a manager. A manager makes lengthy-term choices that have a permanent effect, thus using financial accounting to create proposals and communicate data with the aim of enhancing management choices 5.PROBLEM-SOLVING Unlike financial accounting, which concentrates on historical data, management accounting perceives real performance and relates it to objectives and outlooks for the future. This data is used to define problems that may emerge from expenditures or changes in manufacturing and to create options [ CITATION top19 \l 1033 ]DIFFERENT METHODS USED FOR MANAGEMENT ACCOUNTING REPORTINGManagerial accounting relies on internal financial reporting data received. Controlling, planning and decision-making areapplied for management accounting. Management accountants are based on the balance sheet, report of profit and analysis of cash flow. However, in evaluating corporate information, they also apply other forms of accounting reports. Which can involve monitoring of the budgets, material and quality.1.Cost Report2.Performance Report5
Principles of Management Accounting PDF_6

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Unit 5: Management Accounting Assignment
|126
|39645
|53

Management Accounting - System Types with Examples
|21
|5281
|24

Management Accounting: A Comprehensive Guide to Systems, Reporting, and Financial Problem Solving
|22
|4206
|332

Financial Accounting Report 2022
|25
|5377
|39

Management Accounting in the Conduction of Business for Ryder Architecture
|24
|5787
|219

Management Accounting: Principles, Techniques, and Applications
|23
|4258
|133